Markets sceptical on US:China trade progress; China debt growth rises; China car sales fall; EU plans for hard Brexit; AU business confidence slides further; UST 10yr at 2.85%; oil and gold little changed; NZ$1 = 68.7 USc; TWI-5 = 73.6

Here's our summary of key events overnight that affect New Zealand, with news of drift, decline and unresolved issues that continue to fester.

First up, there are some indications China and the US are building the basis of agreement in their trade spat. China is said to be moving forward tariff reductions and the US is indicating these may be enough to halt further tariff increases. And there are Chinese reports that new orders for American soybean are coming. But markets seem to be treating all this with scepticism; they opened slightly high but on this news have drifted lower in mid-afternoon trade.

But maybe the drift lower is more to do with an acrimonious meeting President Trump had with Congressional Democrats, a meeting he called to get funding for his border wall. It descended into farce quickly with the President threatening to shut down the Federal Government unless he gets what he wants.

In the US, a "small business" confidence survey came in lower than expected. It is still positive however, but the shift lower was something few saw coming.

In China, banking sector debt growth rose more than expected in November after a sharp drop the previous month. Chinese banks extended 1.25 tln yuan (NZ$265 bln) in net new yuan loans in November, slightly more than analysts had expected and up from the previous month. Despite this, "total social financing", their measure of broad money, grew at its slowest pace in a very long time suggesting that their overall economy is cooling and probably faster than Beijing would like.

Chinese car sales fell in November, extending an unexpected decline. Reasons for this trend are hard to find, but excessive commitments to house buying, and the ubiquitous reach of ride sharing in the country are two ne popular theories.

In Germany, an important business survey of economic expectations came in negative again, but much less negative than many were expecting and less negative than in November. Given the state of sentiment in Europe these days, this is seen as an improvement.

And in Brussels, the EU has drafted a plan to prevent turmoil in the multi-trillion-dollar cross-border market for derivatives. The plan is necessary if there is a no-deal Brexit (which seems increasingly likely) to avoid sudden termination notices on these contracts.

In Australia, business confidence dropped further in November. An index of business conditions also fell continuing a downtrend in conditions that has been building all year.The business sector has lost some momentum with confidence levels now below average, suggesting that businesses themselves think momentum will slow further. The partisan policy paralysis in Canberra isn't helping.

The UST 10yr yield will start today at 2.85%. But their 2-10 curve has fallen to just under +11 bps, a -3 bps slip. The Aussie Govt 10yr is at 2.45% (and down -3 bps since this time yesterday), the China Govt 10yr is at 3.30% and down -1 bp, while the NZ Govt 10 yr is at 2.48%, and up +1 bp.

Gold is unchanged at US$1,244/oz.

US oil prices are marginally lower today to be just under US$51.50/bbl. The Brent benchmark is now just on US$61.50/bbl.

The Kiwi dollar is starting today little changed at 68.7 USc. On the cross rates we are holding the new higher level at 95.6 AUc, and firmer at 60.8 euro cents. That puts the TWI-5 up at 73.6.

Bitcoin is lower today at US$3,344 which is a -2.2% retreat since this time yesterday. This rate is charted in the exchange rate set below.

This chart is animated here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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19 Comments

“The problem is not so much income inequality,” he [Philippe Martin, head of the independent Council of Economic Analysis] said. “The big problem is that there is no growth.”

However, this year almost everyone has seen their tax bill rise because Mr Macron, intent on meeting the EU’s 3 per cent deficit target, has chosen to delay the cuts and front-load the rise in the contribution sociale généralisée. [emphasis added]"

https://www.alhambrapartners.com/2018/12/11/paris-technocrats-face-anoth...

And in Carbon news. Spot price moved form $25.10 to $25.30 on heavy volume. The reason? The govt will announce track 1 changes at 5.05 pm today. Could they be about to lift the cap?

The BREXIT turmoil is interesting to watch. While predicting any outcome would be beyond me, I do wonder if the European ministers remember their history? Those stroppy little islands off their coast have a habit of suviving,often in the face of great adversity.

...and coming to their assistance in times of need. Do we think the Uk will do that next time?

Britain has the most powerful military in the EU. That's why the Eastern Europeans and Scandinavians are very, very keen on deployments to their countries. The French Imperialist Bureaucracy in Brussels is not keen on a strong German military, and the Germans don't trust themselves in that regard either ( I think the Germans have a grand total of 79 tanks that actually work) . Hence the call for an EU funded military under (unspoken) French control. Trouble is they are an association of semi-bankrupts and it costs money, lots of money. Losing your number two contributor to the central money box doesn't help either.

The NATO rules are that each country spends at least 2% of GDP on defense. Only Britain, Greece and the Eastern Europeans do so.

Military memories are very, very, long. They are enshrined in the regimental traditions. Thus, in Britain, the Polish pilots are still remembered, made all the more poignant because of the sense of guilt about not being able to help Poland itself. There is also perhaps a certain distrust of French politicians (not French people) persisting from Napoleon, or Vichy France, or five hundred years of warfare between the French and English kings, who knows. These things seem to be deeply engraved in the culture. Who came when the need arose, and who did not.

The miltary memories are in our landscape too. Nelson, Malborough, Wellington. In Nelson, we have Collingwood Street, Nile Street, The Heights of Abraham, references to partially forgotten military leaders and largely forgotten battles. This stuff goes deep.

Of Course the UK will survive without the EU, but the people of the UK must not be intimidated by the threats from Brussels of total collapse . the deal the EU is offering is terrible and the EU will not change it at the moment

No one is saying the UK won't survive, but obviously making it more difficult to deal with your largest trade partner will damage the economy. It's extremely hard to imagine the trading relationship being smoother after any kind of Brexit, so there has to be a personal decision on whether the vague 'sovereignty' benefits outweigh the economic costs.

Personally, I think the way the EU has united the continent and prevented any significant wars in Europe for such a long time is a huge achievement and well worth the minor grumbles over how it works. The fact the I, and even my parents, have been able to live through a period without a major European war is a fantastic achievement and historically unusual.

and the auckland property listing update

Trade me 12756
realestate.co.nz 13499

Both have gone up over the last week, which is a surprise. Who would list this close to Xmas???

Looks like Donald is going to Shut the US Government Down (not that it means that much really!). But...

Chuck! You're not calling the voters of North Dakota and Indiana Deplorables again are you? ("When the president brags that he won North Dakota and Indiana, he's in real trouble.")

Very interesting article, especially this comment on page 3

"Since 1877 there are 1654 monthly measurements of Cyclically Adjusted Price -to- Earnings (CAPE 10). Of these 82, only about 5%, have been the same or greater than current CAPE levels (30.5). Other than a few instances over the last two years and two others which occurred in 1929, the rest occurred during the late 1990's tech boom. The graph below charts the percentage of time the market has traded at various ranges of CAPE levels."

https://seekingalpha.com/article/4227407-another-50-percent-correction-p...

"Canadian government 'deeply concerned' as China detains ex-diplomat without explanation"

There's a sidebar on this topic from Spengler.

A plausible alternative view. Thx, I hadn't caught up with that one.

Commentator yesterday was saying that if there was another vote Brits would vote even more so for Brexit. Surprise viewpoint to me. But given the complete astonishment of the Brit bureaucracy at the last result this could actually be so again. I think the governments of the world are underestimating the anger building amongst the people against their exploitation by the government / corporate parasites.

All the polls have indicated that Leave votes have decreased...although polls haven't been especially reliable and I personally wouldn't want to place bets on how this will unfold. Not in my wildest dreams did I imagine the UK would make as much of a shambles of the negotiations as they have. And we should remember that until recently it was Brexiteers doing the negotiating. I'm not a fan of May, by any means, but the Brexiteers had failed to gain any ground in the negotiations over the last 2 years so it's a bit rich of them to now try and blame it all on May. They look like rich kids having giant tantrums.

Who knows what will happen? The UK could have a leadership crisis in both parties, a General Election, a 2nd referendum, a no-deal scenario or accept the current deal. Any of these are a possibility. The UK would *survive* all of them, but will certainly not *thrive* any time soon. Even if a second referendum happened, remain won and Brexit was cancelled, what would that do to the faith in democracy in an already divided nation? I don't believe there is any good ending. Only shades of brown.

The UK stories are full of doom & gloom but remember, the MSM blow things up for their own benefits. I can't pick it either but what is going on is also going on in America, and is going on in western Europe, democracy is split & divided, left versus right, and the extremes of both sides are getting plenty of airplay. The media have a very important role to play in an open democracy, but when they take sides, it drives a wedge between the parties involved. Why do you think TV1 News viewership is so low? Because it's views not news.